Compaq to post surprise profit

The computer maker hands the tech sector some unexpected good news, saying it will turn a profit for its fourth quarter.

Margaret Kane
Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
2 min read
Compaq Computer handed the tech sector some unexpected good news Monday, saying it would turn an operating profit for its fourth quarter.

Compaq said Monday that it would report a profit for the quarter, with sales coming in at more than $8 billion. The company previously said it expected to report a 3 cent per-share loss and revenue between $7.6 billion and $7.8 billion.

The company didn't elaborate on whether the profit includes or excludes charges, citing its earnings quiet period. First Call was expecting Compaq to report a loss of 3 cents a share excluding one-time items.

Although Compaq's better-than-expected revenue target will still be down 29 percent from a year ago, investors pushed shares up 26 cents to $11.65.

"These results represent strong execution and Compaq's solid momentum in the marketplace," CEO Michael Capellas said in a statement.

Compaq's outlook may indicate that the company can stay focused despite the turmoil surrounding its proposed merger with Hewlett-Packard. Compaq's proposed merger with HP is being fought by members of the Hewlett and Packard families, and there were concerns that all the upheaval would disrupt business.

Compaq has made efforts to show it can function as a standalone company even if the HP deal unravels.

The company has signed a number of big deals amid the turmoil, including contracts with Ericsson, American Express, General Motors and General Electric.

Although many analysts weren't impressed with Compaq's small profit during the peak PC selling season, the company's announcement may help confirm Wall Street's view that the PC sector is rebounding. After what was a dismal year for PC sales, analysts have become a bit more optimistic.

Salomon Smith Barney analyst Richard Gardner said Monday that U.S. retail PC sales rose 30 percent from the third quarter to the fourth quarter, better than the typical 15 percent to 20 percent jump. Part of that was due to the fact that September's sales were abnormally low, however, and shipments during the second half of the year were only about 7 percent higher than in the first half, he said--about half the normal rate.

Still, Gardner said fourth-quarter demand "turned out better than expected."

"We believe Compaq not only had a good (fourth quarter) but that changes made in 2001 will pay dividends in 2002 including lower expense structure, lower inventories and more direct sales," wrote Lehman Brothers analyst Dan Niles. He added that fourth- quarter sales would probably be better than expected because of strong sales in Europe, Compaq's commercial business and better consumer demand.

Niles upgraded Compaq from a "buy" to a "strong buy" Monday.

Compaq will formally announce results for the quarter and for the fiscal year on Jan. 16.